Russia May Cut Off Ukraine's Gas - December, 2008

Russia May Cut Off Ukraine's Gas

December, 2008

Russian gas giant Gazprom has renewed its threat to cut off gas supplies to Ukraine on 1 January, saying a contract dispute has reached a "critical" stage. Russian President Dmitry Medvedev said Ukraine faced Russian "sanctions and demands" if it did not pay off its gas debt "to the last rouble". Gazprom spokesman Sergei Kupriyanov stressed that the dispute would not disrupt gas deliveries to Europe. Ukraine owes $1.67bn (£1.1bn) for gas and $450m in fines, Gazprom says. Gazprom denied that any agreement had been reached with Kiev on postponing the repayment, contradicting an announcement by Ukrainian President Viktor Yushchenko. On Tuesday, Russian Prime Minister Vladimir Putin warned that the era of cheap gas was coming to an end. Earlier, Gazprom said it had warned European customers about possible disruption linked to the Ukraine dispute. The EU gets 42% of its gas imports from Russia, mostly via pipelines across Ukraine. A similar row in 2006 led to gas shortages in several EU countries.

'Pay up'

"If a contract for 2009 is not signed [with Ukraine] then we are not going to deliver gas without a contract," Mr Kupriyanov told reporters in Kiev. "When there is no contract we cannot realise deliveries. The situation is not simple. It is even critical." But Gazprom, he added, would "deliver the full volume of gas destined for transit and... fulfil all [its] obligations towards European consumers". Speaking to Russian TV channels in Moscow, President Medvedev said the non-payment situation could not be allowed to continue. "They should pay the money to the last rouble if they don't want their economy eventually running up against sanctions and demands from the Russian Federation," he said. "It is impossible to go on like this. Let them pay the money."

Economic woes

Ukraine's President Yushchenko said earlier on Wednesday that an agreement had been reached with Gazprom to reschedule repayment. "A portion of the debt will be restructured" over several months, he said, adding that Kiev might return some gas held in storage to Gazprom as reimbursement. "The question has not been solved as was announced in Kiev," Gazprom's Sergei Kupriyanov said in response, in televised comments. Analysts say Kiev will struggle to find the money to pay for the gas. Shaken by the global financial crisis, Ukraine is relying on a $16.4bn emergency loan from the International Monetary Fund to see it through a halving of exports and a sharp devaluation of the national currency. On Tuesday, Vladimir Putin told a meeting of major gas-exporting countries in Moscow that because of extraction costs, "the era... of cheap gas... [was] coming to an end". The Gas Exporting Countries Forum (GECF) meeting in Moscow agreed a charter and plans for a permanent base. Some observers say the GECF may develop into an Opec-style producers' cartel.


In other news:

Gov't to Plan For EurAsEC Anti-Crisis Fund Creation

Russian President Dmitry Medvedev has commissioned the government to draft suggestions on the implementation of an agreement reached by Russia, Armenia, Kazakhstan, and Tajikistan during an informal summit in Kazakhstan on December 19-21 concerning the establishment of a joint $10bn fund, the Russian leader's press office reported to RBC. The primary reason behind the fund's creation is the assistance for EurAsEC member states in overcoming the global economic crisis. Russian Prime Minister Vladimir Putin earlier pointed out that each member state of the organization had chosen its own anti-crisis plan of action, adding that it was vital that all of them were ready to collaborate on the matter.


Russia to Finalize Purchase of Serbian State Oil Firm This Week

Russia and Serbia will sign an oil and gas deal this week allowing Russia's Gazprom Neft to buy a controlling stake in Serbia's NIS, Serbian Deputy Energy Minister Dusan Mrakic said on Monday. Mrakic said the deal would most likely be signed on Wednesday. A preliminary agreement signed in Moscow on January 25 includes the acquisition by Gazprom's oil arm Gazprom Neft of a 51% stake in state-owned Naftna Industrija Srbije (NIS) for $400 million, Gazprom's $500 million investment in a gas storage facility in Serbia, and the construction of the Serbian segment of the South Stream pipeline. Under the South Stream project, a 400-km (248-mile) leg will be built in Serbia for Russian natural gas supplies to and via the Balkans. NIS produces around 1 million metric tons (7.3 million barrels) of crude annually, refines 7 million metric tons (51 million barrels) and has Serbia's largest network of filling stations. Gazprom Neft, known as Sibneft before it was taken over by Gazprom in September 2005, produced 32.7 million metric tons (240 million barrels) of crude and posted a U.S. GAAP net income of $4.14 billion in 2007.


Gazprom Eyes Iran's Oil, Gas Fields

Gazprom is interested in developing Iran's oil and gas deposits, the Russian energy giant said on Wednesday. Earlier in the day, Gazprom CEO Alexei Miller had a meeting with Iran's Petroleum Minister Gholam Hossein Nozari, to discuss in particular cooperation between Gazprom and Iranian oil and gas companies. "Prospecting, development and operation of Iranian oil and gas deposits was cited among the main lines of cooperation. The parties reiterated their interest in strengthening mutually beneficial long-term partnerships in the energy sphere," the Russian company said in a statement. Gazprom has been involved in a project to develop and operate South Pars (reportedly the world's largest gas field with reserves of 14 trillion cubic meters) since 1997. On July 13, 2008, Gazprom and the National Iranian Oil Company (NIOC) signed a memorandum of mutual understanding.


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